The Companies (Creation and Maintenance of data bank of Independent Directors) Amendment Rules, 2021, came into existence on 21st June, 2021. It was introduced for the amendment of the 2019 Rules on creation and maintenance of data bank of independent directors. Now as per the amendment, Indian Institute of Corporate Affairs (The institute) will charge a fee for inclusion or renewal of name in the data bank of independent directors.
These rules apply to all the existing independent directors and individuals who are going to be appointed as an independent directors. In this article we will look into the Companies (Creation and Maintenance of data bank of Independent Directors) Rules, 2019 along with the Companies (Creation and Maintenance of data bank of Independent Directors) Amendment Rules, 2021.
Who are Independent Directors?
In 1998, the concept of independent directors for listed companies was introduced in Desirable Corporate Governance Code by CII.
Independent directors are not connected with the company and work only for safeguarding the interests of the company. In simple terms, they are non-executive directors who assist in improving the corporate credibility of the company.
Section 149(6) of the Companies Act discuss about independent director. An independent director is a director who is other than the managing director/ nominee/ fulltime director. He has to be a person of integrity and expertise. He should not be the promoter of the company or any of its holding, subsidiary or associate company. The independent directors have to make a declaration in every board meeting that he is meeting the criteria of independence.
What is the data bank of independent directors?
As per The Companies Act, 2013 section 149(4), every listed public company should have at least 1/3rd of the total number of directors as independent directors. Section 150 of the Companies Act, 2013 prescribes that an independent director is usually selected from the data bank. The data bank contains the name, addresses, and qualifications of the directors. The company has to practise due diligence before hand-picking the independent directors from the data bank of independent directors.
Objective of Data Bank
- It helps the companies to bring more talent on board.
- It helps to attain the high standards of corporate governance in India. It enables the independent directors to become the agents of change on corporate boards.
- It provides a platform for acquiring more knowledge and developing new skills.
- The data banks of independent directors create an ecosystem for individuals who are looking to venture as directors.
- These data banks have simplified the appointments of independent directors.
- The appointment procedure has become easy and transparent.
The Companies (Creation and Maintenance of data bank of Independent Directors) Rules, 2019
- The Companies (Creation and Maintenance of data bank of Independent Directors) Rules, 2019 were enforced on December 1st, 2019. These rules discuss about the creation and maintenance of data banks. The institute is required to provide the data to the companies that appoint independent directors.
- Rule 3 states that the Indian Institute of Corporate Affairs can create and maintain a data bank of persons who are willing and eligible for the post of independent directors. This data bank is available online on the official website of the institute.
- This data bank includes details like PAN, birth details, educational and professional qualifications, expertise, the list of LLP’s in which he is a designated partner along with the name and nature of the industry, the list of companies where he is director along with the duration, name of company and nature of industry and directorship.
- Additionally, prior to the inclusion in the data bank, the institute conducts an online proficiency self-assessment test of the person on the Companies law, securities, and other relevant topics. If the individual fails in the proficiency test, the name will be removed from the databank.
- If an individual has served as a director or KMP i.e., key managerial personnel for more than 10 years in a listed or unlisted public company having paid-up share capital of Rs. 10 crores or more, then he is exempted from passing the proficiency test.
- The data bank details are available only to companies that have to appoint independent directors and which pay a reasonable fee to the institute. Additionally, if an individual has to make any changes in his particulars, he can do so within 30 days of such change through the web-based framework of the institute.
Companies (Creation and Maintenance of data bank of Independent Directors) Amendment Rules, 2021
Earlier Rule 3(7) (a) of the 2019 Rules stated that the institute shall with the prior approval of the Central Government fix a reasonable fee which can be charged from any individual for the inclusion of their names in the data bank of the independent directors.
Now the above rule is amended and includes that the individuals can be charged for the inclusion as well as the renewal of their names in the data bank of an independent directors.
Rule 3(8) was added in the Companies (Creation and Maintenance of data bank of Independent Directors) Amendment Rules, 2021, stating that in case there is a delay in application, the institute shall allow the inclusion or renewal after charging further fees of Rs. 1000 on account of such delay as mentioned in rule 6 of The Companies (Appointment and Qualification of Directors) Rules, 2014. An individual can be appointed as an independent director irrespective of the fact that he has applied or not applied for inclusion of his name. He can later apply for inclusion by paying an extra fee of Rs. 1000/-.
The Companies (Creation and Maintenance of data bank of Independent Directors) Amendment Rules, 2021 were incorporated for better corporate governance. The independent directors add their diverse knowledge for the better functioning of the companies. The aspiring independent directors are expected to apply for inclusion of their names in the data bank before they are appointed. These amendments give relief to the independent directors who have failed to meet the deadlines. The creation of data banks of independent directors has simplified the appointment procedure. They have paved the way for individuals who are looking for corporate roles and are capable of being found in the system. These rules cater to the needs of the companies as well as independent directors.